Phoenix CPA | Bartering Income
Bartering is defined as the trading of one product or service for another product or service. Often there is no exchange of cash. Some business tend to barter to get products or services they need when cash may be tight. An example would be an accountant exchanging tax services with a landscaper for gardening work. If you barter, you should know that the value of the goods or services you receive is taxable income. This is true even if you are not running a business. Here are few more facts taxpayers should know regarding bartering:
- Bartering income should be reported by both parties at the fair market value of the goods or services they got in return. This information should be reported on their income tax returns.
- Barter exchanges are an organized marketplace where members can barter their products or services with others interested in the same thing. Some exchanges operate out of an office while others operate on the internet. All barter exchanges are required to report the proceeds on a form 1099-B, Proceeds from Broker or Barter Exchange Transactions. Exchanges must give copies of this form to its members who barter throughout the year. A copy is also filed with the IRS.
- The trade/barter dollars that the exchanges will use instead of real money are treated the same as US currency for income tax purposes. If you earn trade/barter dollars you are required to report the amount you earn on your income tax return.
- Bartering is taxable in the year it occurs. Depending on your tax situation, you may owe income tax, self-employment tax, employment tax or excise tax on the proceeds.
- You should report the income on form Schedule C if you are self employed. If you are not self-employed, the income should be reported as other income.
If you have any questions, feel free to contact us at Dusseau & Makris, PC, your Phoenix CPA firm.